This article analyzes bundling incentive and optimal bundling price with substitution/complementary effects. Without bundling cost, price bundling is more profitable than unbundled sale regardless of substitution/complementary effects. However with bundling cost, price bundling is more profitable when the substitution/complementary effects are under a certain level. The optimal bundling price increases as each good's complementary effects, marginal cost, perceived value of customers increase, and the substitution effects decrease. Bundling incentive, which is defined as profit difference between with bundling and without bundling, increases as each good's complementary effects, marginal costs decrease, and the substitution effects increase. The relationship between bundling incentive and perceived value of customers depends on the substitution/complementary effects level. When a firm can charge an optimal price for each good with bundling, the optimal price increases as each good's substitution effects, marginal cost, perceived value of customers increase, and the complementary effects decrease. Each good's optimal price with bundling is always above that without bundling.
If two firms compete in an oligopolistic market, they can fall in prisoner's dilemma, and choose bundling strategy even though it is not optimal.
Like price bundling, optimal product bundling price increases as marginal costs, perceived value of customers increase, and the complementary effects decrease. On the other hand, optimal product bundling incentive increases as the complementary effects, perceived value of customers increase, and marginal costs decrease.
